What is the state of the association?

As people relocate to cities in order to reduce their living expenses, such… (Content That Works )

October 07, 2012

The housing bust battered home sales and prices while skyrocketing foreclosures. It also took its toll on homeowner associations, which govern and maintain condominiums, townhomes and single-family communities.

With unemployment hovering at 8 percent, many homeowners are struggling with mortgage payments, and assessments (which pay for HOA costs) are falling by the wayside.

All this is happening as more and more people move to multi-unit housing and become HOA members.

According to the U.S. Census Bureau, a total of 80.7 percent of Americans lived in urban areas in 2010, up from 79 percent in 2000. From 2000 to 2010, the population of urban areas grew by 12.1 percent, much faster than the country's growth rate of 9.7 percent.

HOAs are a mainstay at city centers. More people flocking to the cities means a bigger population of members for homeowner associations.

"We estimate more than 60 million people that live in some kind of association or community in the U.S.," says Frank Rathbun, vice president of communications at Community Associations Institute, based in Falls Church, Va. "That's one in every five Americans, and it's growing every year."

Rathbun believes the two biggest challenges facing associations now are delinquency in membership dues and enforcement of rules.

"It's hard to find volunteers willing to serve on the boards," Rathbun says. "And there are some people who think rules don't apply to them."

HOAs rely on assessments (usually monthly fees) to pay for the building or community's general maintenance and upkeep; landscaping; repairs to common areas or utilities; and amenities such as pools and golf courses. When the budget gets slashed, the board often has to cut corners to pay for these services.

Beth Lloyd, president of Association of Condominium, Townhouse and Homeowners Associations in Illinois, says many associations have had to ax jobs and non-urgent budget items, while dipping into emergency funds because of delinquency in assessment payments.

"When you don't have everyone paying their portion of assessments, it gets pretty difficult to maintain the bottom line and pay for all the things that you budgeted for," says Lloyd, who is also a broker and president of Coldwell Banker Residential Brokerage in Schaumburg, Ill.

"Many associations have not been able to pay for landscaping enhancements and other nice things," she says. "They have only been paying for the critical stuff like getting the lawn mowed, or paying the utility bills."

With the winter months coming up, associations in cold weather climates are now grappling with finding cheaper and more affordable ways of snow plowing and winterizing amenities.

Some associations have had such high delinquencies that they may already have depleted their reserves and are now on a crisis mode, Lloyd says. The problem is compounded because many governing boards are sympathetic to defaulters or members struggling with unemployment, medical bills and mortgage payments, so delinquent payments are never collected. They also aren't raising their fees. But that's not a good move, Lloyd says.

"It's a fantasy when boards think they don't need to raise money every year – and you have to be aggressive with delinquents," she says.

Unlike private parties and businesses, associations don't easily qualify for loans. So if they run out of money, they have few places to turn. Then the property suffers and fails to attract new buyers into the community, which in turn prevents the board from generating new income.

With few options left, some associations are becoming more aggressive on violations and fining homeowners.

On the other end of the spectrum, some HOAs will take advantage of members when it comes to generating revenue. Jonathan Dessales, a Phoenix lawyer who represents homeowners, says he sees some associations that treat their members unfairly.

"They are fining people even on minor violations and looking at fines as a source of income to offset their losses," he says. "There's really a market out there these days for an unscrupulous homeowner association to gouge its members."